European animal feed manufacturer ForFarmers, announcing
results for the first six months of 2017, says a recovery in livestock markets
is driving growth in its European markets. But factors such as the Brexit
uncertainty holding back its UK operations mean that growth is set to slow over
the rest of the year.
The co-operative has a 6% share of the EU feed market, and
operates across Holland, Belgium, Northern Germany and the UK.
"Our customers are currently in better financial shape than
a year ago, when milk and pig prices were under pressure," notes ForFarmers
Group chief executive Yoram Knoop. "Farmers, especially in the Netherlands and Germany/Belgium,
are buying more high quality feeds again to increase their production.
"There is large uncertainty in the United Kingdom about the consequences
of Brexit for the agricultural sector. Farmers are therefore more hesitant in,
among others, growing the size of their herds, which were reduced last year. In
spite of this, the market in the United Kingdom appears to be recovering slowly."
EU milk prices up 20%
ForFarmers noted that the financial situation of dairy
farmers has improved throughout Europe, with an average 20% increase in milk
prices across its EU markets. This follows "undiminished international demand
for dairy products combined with a decreasing supply in 2016". In turn, the
previous period of low prices saw herd size reductions, which have not yet
recovered to previous levels.
During the second half of 2016, swine prices increased to
their current, much higher than long-term average level. This has been helped
by strong demand from China.
But the European poultry sector has suffered from an
outbreak of Avian Influenza. Despite this, the sector has shown growth with continental
egg prices higher in the first half of 2017 than the same period of 2016.
Operating profit up 18%
ForFarmers saw its operating profit in the January-June 2017
period rise by 18% to E38.7m on revenues that were 3.7% higher at €1.11bn. The
group handled 4.73m tonnes of all feeds, including 3.3m tonnes of manufactured
compounds and blends, respective increases of 3.6% and 6.2%.
"Volume growth in the Netherlands and Germany/Belgium was
higher than the volume decrease in the UK," it said. "As of mid-2016 the
financial situation for farmers in Europe has significantly improved due to
enhanced milk and swine prices, which partly explains the volume growth in
compound feed within total feed."
But the company does not expect first half growth rate to
persist across the whole year. Looking ahead, the company expects the new measures
to reduce environmental phosphate levels, introduced in March, to start to
constrain cow numbers in the Netherlands by as much as 5%.
That country market, as well as Belgium,
could also be affected by the fipronil contamination of eggs crisis that broke
in the last week, although the effect on production and feed demand is hard to
estimate at this early stage, the company expects it to impact on feed sales. It also anticipates that the recovery in UK
livestock production will take longer than expected, particularly for the cattle
EU pigmeat demand slowing
"In the second half of 2017, geopolitical developments will influence
the markets in which ForFarmers is active" says Mr Knoop. "Raw material prices
and developments on the currency markets are difficult to predict. Milk and swine
prices are at a historically high level.
"Swine prices have however started to
decline at the end of the second quarter in 2017 - Chinese pig meat production
is increasing and there is more international competition for European exports.
Whether European exports of pig meat to China will remain at the current level
is therefore not likely.
"Demand for pig meat in Europe is slowly dropping and consumers
have an increasing preference for poultry."